Northern Virginia Office Report Q4 2018

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Demand

  • Amazon announced that half of HQ2 will be located at National Landing, creating more than 25,000 jobs over the next decade.
  • Demand for office space grew by 811,567 square feet during the quarter, bringing the total net absorption for the year to 2.6 million square feet. As a result, 2018 was the second consecutive year net absorption exceeded two million square feet. The last time there was repeated years of net absorption at this level was in 2005 and 2006.
  • Tenants’ preference for Class A space was evident in 2018 as net absorption of Class A product totaled 2.6 million square feet. In the fourth quarter of 2018, demand for high-end space grew for the eighth consecutive quarter.
  • During 2018, demand for office space in Class B and C product increased for the first time in 11 years with net absorption totaling 175,401 square feet.

Supply

  • After reaching a 10-year low of 1.5 million square feet under construction last quarter, the amount of space being built increased to 2.8 million square feet as Boston Properties commenced construction of the Transportation Safety Administration (TSA) headquarters building in Springfield.
  • The only building to deliver during the fourth quarter was the 100,000-square-foot building at 3000 Potomac Avenue and was the first office building constructed in the Potomac Yard region of the National Landing submarket. Kaiser Permanente preleased 42,000 square feet in the building, while the owner, National Industries for the Blind, occupied the remaining portion.

Vacancy Rates

  • With demand growing faster than supply, the vacancy rate fell from 17.8 percent to 17.1 percent during the quarter. The vacancy rate has not been this low since it measured 16.7 percent in the third quarter of 2013. >> Vacancy rates across all classes of space decreased in 2018. The Class A rate fell from 18.7 to 17.6 percent. The Class B and C rates fell from 19.2 to 18.6 percent and from 13.6 to 11.6 percent, respectively.

Rental Rates

  • During the quarter, the direct average asking rental rate increased $0.16 or 0.5 percent to $32.72 per square foot. It was up 1.4 percent from the beginning of the year, but well below the 2018 inflation rate of 2.3 percent.
  • Despite increasing rental rates in 16 of the 24 submarkets, the Class A rental rate decreased $0.14 or 0.4 percent since the beginning of 2018. Adjustments to rent expectations in the I-395 Corridor caused the decline. During the year, the submarket’s Class A asking rate fell $5.00 or 17.2 percent to end the year at $24.00 per square foot.

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Northern Virginia Office Report Q4 2018

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